Armour Group (LSE:AMR)
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American Airlines, a unit of AMR Corp. (AMR), in the next year will close or downsize some U.S. aircraft maintenance facilities, cutting up to 700 jobs, or about 5% of its maintenance staff of 12,700, as the size of its fleet gets smaller, and other U.S. airlines move maintenance work offshore.

In a letter to employees, Carmine Romano, the Ft. Worth, Texas, airline's senior vice president of maintenance and engineering, said American will close its Kansas City facility next September and will reduce work in San Francisco and St. Louis. The jobs include management and union positions, where employees are represented by the Transport Workers Union of America. Several smaller facilities for overnight maintenance also will be closed.

In a statement, the union said downsizing came as a result of economic recession and "cutthroat domestic and international competition." But, said John Conley, director of the TWU Air Transport Division, "We're still hopeful that, before the Kansas City facility closes late next year, that industry conditions will improve and allow many of our members to find work elsewhere in the company."

Unlike most U.S. competitors, American Airlines doesn't outsource scheduled aircraft maintenance, and in recent years has brought work in-house from other carriers. But, across the industry, the trend has been to schedule routine maintenance offshore, in countries such as El Salvador, where costs are lower. Spokesman Tim Wagner said American Airlines tried for 10 months to get work from other airlines to keep the Kansas City maintenance facility running, but "our bids weren't competitive with offshore facilities, because our labor costs are higher," he said.

At American's primary maintenance facility in Tulsa, Okla., the company performs nearly all the regular maintenance needed on its own aircraft, and works on planes for "a number of other carriers," Wagner said. American sends out about 9% to 10% of maintenance to the original manufacturer for specialty work, such as on cockpit avionics.

In his letter to employees, Romano noted that, as the U.S. airline industry downsized capacity, the AMR fleet has shrunk from a high of 900 aircraft to about 600 currently. As well, older aircraft that required more maintenance have been replaced by newer planes.

American Airlines aims to "move toward a more flexible, cost-efficient operation that improves flow and takes into account the long-term impact of the recession on travel..." as well as changes American is making to its own route network, Romano told employees.

Meanwhile, U.S. legislators have raised questions about overseas maintenance contracts at some U.S. airlines. The loss of U.S. jobs is one concern, but, some lawmakers say, so is aircraft safety, since the Federal Aviation Administration doesn't oversee foreign locations with the same scrutiny as domestic facilities.

-By Ann Keeton, Dow Jones Newswires; 312-750-4120; ann.keeton@dowjones.com